The Wall Street and London City Masters of the Universe thought they were "Smarter than Gravity." They were not. Now it is economics for the rest of us.

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Friday, March 22, 2013

The USA, UK and EU are Planning to take your Savings: A Whiff of Desperation in the Air?

***Please feel free to
leave comments or ask questions at the bottom of the article. We will reply or
will write a special article to answer your questions.***

Yes, they are planning to take your savings in the USA, the UK and the EU.

Katia Christodoulou / EPA

A woman unsuccessfully attempts to withdraw from a Cypriot bank ATM in Greece on Sunday.

A recent paper by the Bank of England and the American Federal
Deposit Insurance Corporation (FDIC) demonstrates that both governments have a plan to take your
savings money in a financial crisis. Scarily enough, the paper was published in December 2012.

As recent events in Cyprus, Spain, Portugal, Greece and Italy have shown, an unthinkable financial crisis can actually emerge at any time - just like it did in 2008. The 2008 crisis required trillions of dollars (pounds, euros) to bail out broken banks.

So, you have to ask yourself: Could my government take my money out of my savings account?

The answer is almost every case is “Yes”.In the USA, the UK and the EU, not only is it
possible, but the reality is that two of the governments have just recently discussed how they would take your money.As with almost all economic writing, it lacks
clarity and appears bland, but when read and reread it several times, it is
chilling.

The title of the paper
is Resolving Globally Active,
Systemically Important, Financial Institutions.

A translation is necessary
here.To an economist or banker the term
“resolving” means “giving money to.” “Globally active” means a bank that has
operations in more than just one country.The term “systemically important” is banker speak for “we think this bank is too
big to fail and therefore we have to bail it out.”The term “financial
institutions” refers to banks as well as large insurance companies such as
Lloyd's of London or AIG in America.

The title of this
paper is actually “In the event of
another financial crisis like the one in 2008, we are going to take money from
savers and tax payers and give it to the international banks which are holding us as financial hostages by
being too big to fail.”

As an aside, this is also an indirect admission that the problems that caused the 2008 financial crisis have not been addressed.

Have a look at the following key paragraph, and then see the
explanations below.

34. The U.K. has also given consideration to the recapitalization
process in a scenario in which a G-SIFI’s liabilities do not include much debt
issuance at the holding company or parent bank level but instead comprise
insured retail deposits held in the operating subsidiaries. Under such a
scenario, deposit guarantee schemes may be required to contribute to the
recapitalization of the firm, as they may do under the Banking Act in the use
of other resolution tools. The proposed RRD also permits such an approach
because it allows deposit guarantee scheme funds to be used to support the use
of resolution tools, including bail-in, provided that the amount contributed
does not exceed what the deposit guarantee scheme would have as a claimant in liquidation
if it had made a payout to the insured depositors. That is consistent with
the contribution requirement that is already imposed on the Financial Services
Compensation Scheme in the U.K. in the exercise of resolution powers10 and simulates
the losses that would have been incurred by those deposit guarantee schemes
during bank insolvency. But insofar as a bail-in provides for continuity in
operations and preserves value, losses to a deposit guarantee scheme in a
bail-in should be much lower than in liquidation. Insured depositors
themselves would remain unaffected. Uninsured deposits would be treated in line
with other similarly ranked liabilities in the resolution process, with the
expectation that they might be written down.

The abbreviation RRD
refers to the European Union Recovery and Resolution Directive.In other words, the joint UK and USA paper
actually has its roots in the large European Union, so the concepts in this
paper could easily be applied to the other countries in the EU.(Hello France and Belgium and yes even Germany!!)

The following words
are key to the intent of the authors:it
allows deposit guarantee scheme funds to be used to support the use of
resolution tools, including bail-in.This means that money that is intended to be given to depositors
(savers) in the event of a bank failure can instead be given to the bank itself
as a means of resolving the crisis.

In other words,
depositors are told that the first 100,000 dollars (pounds, Euros) of their
savings are guaranteed by a government program so that even if the bank fails,
the depositor will get their money back up to the agreed limit.

Now, the new plan is to give that guaranteed money to
the bank, rather than the depositor.

The theory behind
this is explained in the second underlined section. These economists have the
idea that if the bank is going to fail, why not give it the guaranteed money to
the bank so it can continue operations, and small depositors will then not lose
any money as the bank keeps going.They
also appear to reason that larger depositors (more than 100,000) may lose money
in the event, but that this plan will be cheaper overall.

On the surface,
this accounting trick may sound reasonable, but the plan is deeply flawed.

First, it breaks
the guarantee that you will get your money back if there is a bank failure.

The bank gets it.

More importantly,
it does not address what will happen after the deposit guaranteed money is
given to the bank.The flaw is that if
the public becomes aware of the money transfer – and they will – then the large
depositors and bond holders will lose faith in the institution.They will quietly take out their money as
soon as they can, and then the cycle starts over again.The outcome is that the bank will fail again.Only this
time, the money that should have gone to the small time depositors from the
FDIC is already gone – taken by the bank!So another bailout is needed. This is simply a wealth transfer from the
government to the banks at the expense of the saver and taxpayer.

Behind all the
laws, rules and economic jargon that no one can really understand, there are
some real world facts that cannot be changed.

They are:

1.Most of the advanced Western democracies have
crippling debt levels that they cannot fix through increased austerity, taxes
or increased stimulus.They will need to
find more money and they need it soon.

2.The governments and banks of the advanced
democracies are run by persons who have a significant interest in maintaining
the status quo which gives them their power and wealth.

3.When government and banks need more money,
they will get it. They will change the laws to make this happen.

4.Savers have money, debtors do not.

5. Governments and banks have multiple ways of
getting this money, either though taxes, fees, low interest rates or inflation
or – most simply – just taking it as they are now discussing in this paper.

Conclusion

The belief that your
money is safe in a bank due to the government guarantee on the first 100,000 is
no longer a valid concept.Those that
have the power (Banks and Governments) may need this money soon.If you have it, they will find a way of
taking it.

4 comments:

I maintain a modest amount of cash in the bank to meet each month's expensives. I keep cash offsite for approximately three months expenses and for sudden or emergency requirements. Other than that, for the longer term I have physical silver and physical gold. This is not a recommendation for how other people should lead their lives, but it is what I do with mine.

Taylor, You may be right in that those who are impoverished now will have an advantage later - in that they are used to adapting or living without.As for advice - that is always hard to say. My first job at 14 was in a bike shop assembling 10 speed bikes. Second job at 16 was McDonalds. Since then, I have had good days and bad days. Key lesson is this: It does not matter what job you have or might get. Show up. Show up on time. Get the job done the best way you can in the best time possible. Then make yourself useful doing something else without being asked. After a while, folks will get to know that you are the go-to guy. Even if that job dissappaers, you will still have a reputation for being a guy that gets the job done. In the meantime, keep an eye on value in your life and take advantage when you can. I still keep an eye on costs for everything. Just saw a one pound bag of pasta noodles in my local supermarket for 88 cents! I bought five bags of it and put them aside. Same goes for stuff like soap. Even if you don't need it now, you may want it later when you do not have so much money. Never buy stuff form 7/11 or stores like that - way too expensive. Got a cell phone or smart phone? Keep the plan to a minimum. My BB just has phone and email - no data plan and nothing like that. Meanwhile, the other thing that keeps me going is to always figure that somehow things will work out better tomorrow if I keep going today.

About Me

Hi there! We here at the Honest Banker do not have PhDs in Economics like Ben Bernanke over at the US Federal Reserve. Nor do we have Harvard degrees like Governor Mark Carney of the Bank of Canada/Bank of England. We are not quants with math degrees. What we do have is practical education and honest experience. We contribute to the real world economy while trying to figure out how to survive and build value in our lives and our communities under the current economic model. This model has been dictated to us by economists and politicians using many of the same seriously failed economic models that gave us the financial collapse of 2007 and 2008.
This is “economics for the rest of us” who live in the real world and are trying to figure out how to survive in it despite what the financial sector is doing to us.